Wall Street History

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Wall Street History

05/27/2005

Charlie Merrill, Part II

Continuing with our story of Merrill Lynch founder Charlie
Merrill, in 1940 Charlie and partner E.A. Pierce issued their
“Declaration of Policy,” which author David Colbert describes as
a “savvy marketing cream puff.”

“That it needed to be described in detail,” Colbert adds, “reveals
much about how brokers operated before the SEC and the
public’s distrust afterward.

“In fact, during the entire 1940s, Wall Street failed fully to
benefit from the growth in the economy. Though the Dow Jones
Industrial Average doubled, it fell short of the much greater
growth in corporate profits. The public, remembering 1929, still
had little taste for investing.”

Charlie Merrill’s goal was to make it palatable again.

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A DECLARATION OF POLICY
CHARLES E. MERRILL AND E.A. PIERCE
TO PARTNERS AND MANAGERS:

During the past few years we have been trying to readjust
ourselves. Some of us have been a little slow in realizing that the
readjustment has to be permanent, and a few doubt the
possibilities of any successful readjustment. Nevertheless, we
are convinced that the buying and selling of stocks, bonds, and
other evidences of liens and ownerships is a fundamental
business that performs an essential service The sooner we
recognize that the temper of living may never again be identical
with what it was twelve or fifteen years ago, the sooner we shall
gear ourselves for success under present and future conditions.

These policies rest on a conviction – not always uppermost in
our minds, we’ll grant you – that in order to win success we
businessmen have to put the public’s interest first. The customer
may not always be right, but he has rights, and upon our
recognition of his rights and our desire to satisfy them, rests our
chance to succeed. It’s not banal poppycock to say today that
we’ve got to succeed through the service we can render the
investing public. And it’s only looking facts in the face to say
that a legitimate, honest service is the only justification for
success.

Disturbing is the large percentage of potential investors and
speculators in securities who are suspicious of the motives and
operations of the security business and the people engaged
therein. You and we know the reasons for this lack of
confidence and we know that it won’t be eliminated until we
know that it won’t be eliminated until we convince the public
that our house is now in order.

You may be interested in knowing how your senior partners
feel about the SEC. We’ll tell you. We are in full accord with
the fundamental purpose of the Securities and Exchange laws –
to give the investor adequate information, and to prohibit
manipulation and fraud – and we pledge to our customers a
complete cooperation with all future efforts designed to
strengthen further these fundamental purposes.

No regulations or policies, however, can pretend to guarantee
profits nor insure against loss. But we believe our customers can
confidently use the Exchanges for investment and speculation
with assurance that there are no stacked cards.

Let’s take a look at our registered representatives, or
customer’s men. They are going to represent an important phase
of our new job, principally because we think we are going to
make it possible for them to operate on a different and sounder
basis than in the past. One of the troubles in our business has
been a potential conflict of interest between the customer and the
customer’s man, created by compensation practices which we
believe were wrong. We’re going to minimize, perhaps even
eliminate, that potential conflict of interest.

Between ourselves, we think the best name for these men is
service representatives, because it best expresses what we would
like them to be in our organization .[They] will assist their
customers in getting all desired factual data; they will offer no
advice as to the purchase or sale of securities or commodities
except under restrictions mentioned [earlier]; they will circulate
no rumors, “confidential suggestions,” or “hot tips”

In closing, we’d like to express our unshakable confidence in the
future of our country, in the basic soundness of our type of
economy – capitalism – and in the essential place that the
security business has in that economy.

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Again, this was brilliant marketing, passed out to all clients and
prospects, and while it may sound like much of what you hear in
today’s sales pitches when it comes to the big brokerage firms,
back in 1940 it was revolutionary.

But to switch gears, here’s an anecdote from Martin Mayer’s
1955 book “Wall Street: Men and Money” concerning Charlie
Merrill.

“Some years ago an officer of one of the many semi-official
organizations that help police the financial market was sitting in
on a Merrill Lynch cocktail party at an investment banker’s
convention. He was sipping a drink and listening to the cheerful
sounds about him, and suddenly he felt a finger tap on his
shoulder. He turned around.

“An anonymous minion was standing above him. ‘The boss
wants to see you,’ the minion said.

“The officer rose and followed to the top floor of the hotel,
where a dozen men were standing around the living room of a
suite, smoking and talking in hushed voices. Every once in a
while the bedroom door would open and somebody would come
out, move over to one of the men and nudge him toward the
bedroom. Finally it came the officer’s turn. He walked into one
of the best bedrooms that could be offered by one of the best
hotels in the state of Florida, and Charles Merrill was sitting on
the bed.

“ ‘What do you want?’ Merrill said.

“ ‘I don’t want a goddamn thing,’ said the officer somewhat
irritably. ‘All I know is, one of your people told me that the boss
wanted to see me, so I came up.’

“Merrill grinned. ‘Sit down, young man,’ he said. ‘Sit down.’
The officer sat down and Merrill said in his best Southern
manner, ‘I just wanted to tell you that I like the work you’re
doing. And if you ever need any help with anybody, just let me
know. I’ll follow your orders.’

“ ‘Thank you,’ said the officer, sincerely.

“ ‘You know,’ Merrill said reflectively, ‘there isn’t a single trick
in this business that I don’t know.’ He stopped, and grinned.
‘And the reason I know them is, I’ve pulled every one of them
m’self. Now that I’m an old man, I don’t want to see anybody
pulling them on me.’

“It will be understood that Merrill was giving an explanation, not
a reason. Although nobody in government or finance is so
fanatically devoted to honest practice, most people on Wall
Street believe that anyone who tried to gyp Charlie Merrill would
get his business throat cut in short order .

“He is the first authentically great man produced by the financial
market in 150 years. The Drews and Goulds, the Cookes, the
Morgans and the Livermores – these men existed in a tight little
island of their own making, where the public was sheep to be
shorn. They made the alleys of Wall Street dark and dangerous
places, and they kept for themselves as much as possible of the
benefits that came from the system which produced their
fantastic riches. Merrill brought in the public, not as a lamb to be
fleeced but as a partner in the benefits. Today a man who loses
his shirt in the market is the victim of his own stupidity or greed,
not of the machinations of insiders. The climate of the thirties
helped, the laws helped and many individuals helped; but the
prime mover was Charlie Merrill.”

Well, Mayer, who’s still writing, would probably like to take
back the bit about insiders hurting the little guy because that’s
essentially what the Bubble of the late 1990s / 2000 was all
about. But otherwise it’s a good summation.

Charlie Merrill died on October 6, 1956. Market historian
Robert Sobel comments in “The Pursuit of Wealth.”

“(The month Merrill died), there were 18 sessions in which 1
million shares were traded and five in which the 2 million share
mark was bested, and the Dow closed at 482 the day before. His
legacy was a nation becoming increasingly involved with share
ownership. In 1939, there had been fewer than 4 million
shareholders. According to the 1952 shareholder census, there
were then 6.5 million, and another census conducted in 1962
showed 17 million. By 1966, there were 20 million shareholders.
The beginning of what was to be the democratization of wealth
had taken place.”

Sources (Parts I and II):

David Colbert, “Eyewitness to Wall Street”
John Steele Gordon, “The Great Game”
Martin Mayer, “Wall Street: Men and Money”
Robert Sobel, “The Pursuit of Wealth”
Robert Sobel, “The Great Boom”

Wall Street History will return June 3.

Brian Trumbore

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